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Book part
Publication date: 8 April 2010

Terhi Chakhovich, Seppo Ikäheimo and Tomi Seppälä

Purpose – This research presents empirical evidence on which performance measures are perceived as short-term oriented and long-term oriented by company executives, and on…

Abstract

Purpose – This research presents empirical evidence on which performance measures are perceived as short-term oriented and long-term oriented by company executives, and on whether any perceived performance measure-related time orientation affects the time orientation of these executives. In addition, the study explores which measures impact executive time orientation, regardless of how these measures are perceived.

Methodology/approach – A survey was used to collect the perceptions of chief financial officers (CFOs) in 109 companies listed in the Nasdaq OMX, the Nordic Stock Exchange. Performance measures include: stock price, earnings, returns, cash flow, success of development programs, EVA™, sales, and balanced scorecard, and the method employed was multiple regression.

Findings – First, the CFOs perceived returns, sales, EPS, and stock price to have long time orientation. Second, the use of returns, stock price, and success of development programs as major performance measures encourage the CFOs toward long-term behavior, whereas the use of cash flow encourages short-term behavior. Third, stock price, earnings, and EPS are measures whose perceived time orientation affects the time orientation of executives. It is most likely due to this influence, that they have received major attention in public debates on the short time orientation of executives at the expense of other, more “silent” measures that also impact executive time orientation. Contextual factors strongly affect the results.

Practical implications – The study assists in designing executive performance measurement systems that encourage desired time orientation.

Originality/value – This study contributes to the fields of performance measurement and time orientation by recognizing the multidimensionality of the construct of time orientation and by showing how performance measures and their perceived time orientation influence executive time orientation.

Details

Performance Measurement and Management Control: Innovative Concepts and Practices
Type: Book
ISBN: 978-1-84950-725-7

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Article
Publication date: 20 April 2020

Nick J. Reed, Natalie Wilson and Kathryn J. Hayes

A method to engage salient organisational stakeholders in identifying and ranking measures of healthcare improvement programs is described. The method is illustrated using…

Abstract

Purpose

A method to engage salient organisational stakeholders in identifying and ranking measures of healthcare improvement programs is described. The method is illustrated using Executive WalkRounds (EWRs) in a multi-site Australian Health District.

Design/methodology/approach

Subject matter experts (SMEs) conducted document analysis, identified potential EWRs measures, created driver diagrams and then eliminated weak measures. Next, a panel of executives skilled in EWRs ranked and ratified the potential measures using a modified Delphi technique.

Findings

EWRs measurement selection demonstrated the feasibility of the method. Of the total time to complete the method 79% was contributed by SMEs, 14% by administration personnel and 7% by executives. Document analysis revealed three main EWRs aims. Ten of 28 potential measures were eliminated by the SME review. After repeated Delphi rounds the executive panel achieved consensus (75% cut-off) on seven measures. One outcome, one process and one implementation fidelity metric were selected to measure and monitor the impact of EWRs in the health district.

Practical implications

Perceptions of weak relationships between measures and intended improvements can lead to practitioner scepticism. This work offers a structured method to combine the technical expertise of SMEs with the practical knowledge of healthcare staff in selecting improvement measures.

Originality/value

This research describes and demonstrates a novel method to systematically leverage formal and practical types of expertise to select measures that are strongly linked to local quality improvement goals. The method can be applied in diverse healthcare settings.

Details

International Journal of Health Care Quality Assurance, vol. 33 no. 4/5
Type: Research Article
ISSN: 0952-6862

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Article
Publication date: 18 February 2019

Terhi Chakhovich

The temporality of performance measurement systems has been claimed to affect actors’ time orientation, such as that of listed company managers. The purpose of this paper…

Abstract

Purpose

The temporality of performance measurement systems has been claimed to affect actors’ time orientation, such as that of listed company managers. The purpose of this paper is to explore this view.

Design/methodology/approach

The study uses constructivist data gathered from executives in one listed and one non-listed company.

Findings

The study shows that the research on performance measurement is based on a linear-quantitative view on time that assumes that humans orient towards the future from one point, the present; this view excludes other time-related constructs, particularly the past, and highlights a choice between the short term and the long term, idealising the long term. It is shown that the performance measurement of non-listed company executives is constructed through past-based, present-based and future-based rationalities: executives acknowledge the past as a basis for present and future performance, present actions as shaping future performance and future plans and performance targets as bases for present actions. Listed company executives’ performance measurement is constructed predominantly through the present-based time rationality.

Research limitations/implications

“The orientation from the present” and the “short” and “long terms” could be enhanced with time rationalities.

Practical implications

The evaluation periods within performance measurement systems do not determine the time orientations of the actors subjected to those systems; time rationalities could be considered when designing such systems.

Originality/value

The paper provides a novel view on performance measurement and time.

Details

Accounting, Auditing & Accountability Journal, vol. 32 no. 2
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 17 February 2012

Arron Scott Fleming and Ludwig Christian Schaupp

This paper seeks to examine the differences between executives and investors in the perception of determinant factors in executive compensation.

Abstract

Purpose

This paper seeks to examine the differences between executives and investors in the perception of determinant factors in executive compensation.

Design/methodology/approach

From a survey instrument comprised of archival executive compensation determinant items, a factor analysis is performed to examine the construct determinant perceptions unique to executives and non‐executive investors.

Findings

The authors find differences in factors between executives and non‐executive investors in a manner expected by agency theory. Non‐executive investors place greater weight on factors related to performance and less weight on human capital factors, while executive investors place greater weight on human capital factors in determining executive compensation.

Research limitations/implications

This study is limited in that the sample may not be representative of the population of chief executive officers or shareholders in the USA.

Practical implications

Differing factors suggest that there is a misalignment of measures desired to be the foundation of executive compensation. The differing measures used to potentially motivate agents (executives) by principals (investors) results in an agency cost.

Originality/value

The authors have documented a difference between executives and investors in factors desired to determine executive compensation.

Details

Corporate Governance: The international journal of business in society, vol. 12 no. 1
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 20 March 2007

Carlos F. Gomes, Mahmoud M. Yasin and João V. Lisboa

The objective of this study is to shed some light on the information flow between executives and financial analysts in the context of manufacturing performance measurement…

Abstract

Purpose

The objective of this study is to shed some light on the information flow between executives and financial analysts in the context of manufacturing performance measurement and evaluation.

Design/methodology/approach

The predictive value, information availability and frequency of performance measures used by the sampled manufacturing organizations and financial analysts are compared using multiple regression analysis.

Findings

The findings of this study clearly underscore the increasing significance of non‐financial and non‐traditional performance measures. The importance of customer‐based and quality‐related measures is noted.

Research limitations/implications

The sample used in this study is specific in nature. It consisted of Portuguese manufacturing organizations and Portuguese financial analysts. Thus, the results should be interpreted accordingly.

Practical implications

The findings of this study have clear implications for organizational information systems. Re‐engineering of organizational information systems is called for toward closing the information gaps which exist in the context of organizational performance measurement.

Originality/value

This study has both practical and theoretical value, as it empirically explores the practical implications of some important issues related to organizational performance.

Details

International Journal of Productivity and Performance Management, vol. 56 no. 3
Type: Research Article
ISSN: 1741-0401

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Article
Publication date: 1 March 2013

Patti Collett Miles and Grant Miles

The purpose of this paper is to explore whether socially responsible firms recognize the potential conflicts that come with higher levels of executive compensation, and…

Abstract

Purpose

The purpose of this paper is to explore whether socially responsible firms recognize the potential conflicts that come with higher levels of executive compensation, and thus limit executive pay relative to what is being paid in other firms. In the process, the relationships between executive compensation and financial performance, and corporate social performance and financial performance are examined to determine whether potential compensation and social performance links are coming at the expense of company financial performance.

Design/methodology/approach

The empirical data for this research were obtained from a stratified sample of Fortune 1000 companies pulled from across more than 15 industries. Multiple regression analysis is utilized to test three hypotheses.

Findings

In line with the hypotheses, results indicate that companies identified as good corporate social performers do in fact have lower levels of executive compensation and there is some support found for a positive relationship between social and financial performance.

Practical implications

The results provide support for the view that firms concerned about social responsibility can put restrictions on executive compensation and still achieve good financial performance, and make a case that executive compensation should in fact be a concern of all socially responsible firms.

Originality/value

There are few studies that examine the direct link between executive compensation and corporate social responsibility. This study addresses this gap in the literature and adds to the discussion as to whether socially responsible firms might seek to better balance compensation across the firm and emphasize that profit, both individual and corporate, must be earned within a system that is fair and balanced for all.

Details

Social Responsibility Journal, vol. 9 no. 1
Type: Research Article
ISSN: 1747-1117

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Article
Publication date: 1 February 2006

Carlos F. Gomes, Mahmoud M. Yasin and João V. Lisboa

The objective of this study is to shed some light on performance measurement issues relevant to current practices.

Abstract

Purpose

The objective of this study is to shed some light on performance measurement issues relevant to current practices.

Design/methodology/approach

The performance measurement practices in terms of utilization, relevance, and availability of information are studied for a sample of 92 Portuguese manufacturing executives. Several statistical instruments were used namely multiple regression analysis, cluster analysis and gap analysis.

Findings

The results of this study underscore consistent patterns pointing to a lack of a broad perspective on manufacturing performance measurement. Conclusions and their implications to the theory and art of performance measurement are presented.

Research limitations/implications

The sample used in this study is specific in nature (Portuguese executives). Thus, the results should be interpreted accordingly. Future research should test the applicability of the obtained results using other sample frames.

Practical implications

This study provides practicing managers with useful information regarding performance measures and measurement practices.

Originality/value

This study represents an important step toward refining the theory and practice of performance measurement in manufacturing organizations.

Details

Journal of Manufacturing Technology Management, vol. 17 no. 2
Type: Research Article
ISSN: 1741-038X

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Article
Publication date: 11 September 2017

Wonlop Buachoom

The purpose of this paper is to determine the two-direction relationship between financial firm performance and executive compensation in Thai listed companies; that is…

Abstract

Purpose

The purpose of this paper is to determine the two-direction relationship between financial firm performance and executive compensation in Thai listed companies; that is, effect of firm performance on executive compensation and the effect of executive compensation on subsequent firm performance. In investigating the relationship, governance, firm-specific and human capital characteristics, which should influence on the pay-performance system, are also considered. This study helps to shape an understanding of the effectiveness of the incentive system in the Thai context.

Design/methodology/approach

The System GMM, with concern about the endogeneity problem of the simultaneous relationship, is applied to examine the relationship between firm performance and executive compensation. The samples to investigate this relationship composed of 5,139 firm-years observations for 15 years from the years 2000 to 2014 of 432 non-financial firms in the Thai stock market.

Findings

The empirical evidence reveals simultaneous relationship between performance and executive compensation in Thai stock market. It shows that compensation of executives in Thai firms corresponds to firm performance, and compensation of executives leads to an improvement in subsequent performance of Thai listed firms. Moreover, some corporate governance mechanisms and human capital of executives also revealed their particular effects on setting of the pay for performance system in Thailand.

Originality/value

This study confirms that the pay for performance system is applicable in Thailand. Furthermore, the empirical results of this study highlight effects of some governance and human capital characteristics on setting of the pay-performance system. Thus, this study should be a part of the growing body of literature in this area.

Details

Asian Review of Accounting, vol. 25 no. 3
Type: Research Article
ISSN: 1321-7348

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Article
Publication date: 3 June 2019

Yilin Zhang, Dongling Cai, Fansheng Jia and Guangzhong Li

This paper aims to mainly investigate the role of trust, which is an important informal system, in executive compensation incentives.

Abstract

Purpose

This paper aims to mainly investigate the role of trust, which is an important informal system, in executive compensation incentives.

Design/methodology/approach

Using the data of Chinese A-share private enterprises from 2003 to 2014, the paper estimates the effect that trust has on executive compensation incentives.

Findings

Results indicate that trust can significantly enhance the effectiveness of executive compensation incentives. Furthermore, the better the regional trust environment in which companies are located, the more pronounced the effect is. In particular, the effect of trust on executive compensation incentives is only significant when the formal legal system is immature. As companies continue to grow and develop and the formal system becomes perfect, the role of trust weakens. The formal system, including the corporate governance mechanism and perfect legislation, then becomes the key to promoting executive compensation incentives.

Practical implications

This paper provides evidence of the significance of both informal and formal systems. It not only emphasises the important role that the informal system has played in “the mystery of China’s economic growth” but also supports the “ruling the country by law” strategy for the sustainable development of China’s economy.

Originality/value

This paper reveals the relationship between the formal and informal systems, which provides a new perspective on and empirical evidence for the determinants of executive compensation incentives, and it also finds an explanation for the rapid growth of China’s economic development.

Details

Nankai Business Review International, vol. 10 no. 2
Type: Research Article
ISSN: 2040-8749

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Article
Publication date: 1 February 1995

James O. Fiet and Rita D. Kosnik

The use of covariance structure modeling is explored as a means of moving toward a resolution of the debate over the antecedents of executive compensation. The major…

Abstract

The use of covariance structure modeling is explored as a means of moving toward a resolution of the debate over the antecedents of executive compensation. The major strength of this methodology is that it enables researchers to measure the effects of unobserved factors on measured variables. It is suggested that covariance structure modeling is a promising way of studying the effect of institutional isomorphism on executive compensation. The popular business press has questioned repeatedly the justification for and the performance effects of prevailing executive compensation systems (Crystal, 1988; Loomis, 1982; Patton, 1985). These articles argue that executives are more interested in creating wealth for themselves than for stockholders. They also underscore the absence of an obvious link between executive compensation and firm performance. Recent academic research on executive compensation adopts an agency perspective that emphasizes potential conflicts of interest between managers and stockholders. It contends that, in the absence of effective disciplining and monitoring systems, executive compensation plans may direct managers' efforts toward personal wealth enhancement to the detriment of firm value (Baumol, 1958; Berle & Means, 1932). In response, scholars have urged that executive compensation plans contain monetary incentives that only accrue to executives when shareholder wealth is maximized (Kerr, 1985; Rappaport, 1983; Tehranian & Waegelein, 1985). However, designing compensation systems that effectively align the interests of managers and stockholders requires a knowledge of the role and effect of relevant driving forces on compensation. Statistical research on executive compensation has been guided predominantly by a search for tangible, observable determinants (Ciscel & Carroll, 1980), examples of which have been firm size or growth rate (Baumol, 1967; Marris, 1963), inter‐firm and inter‐in‐dustry differences (Coughlan & Schmidt, 1985), and performance (Murphy, 1986). The emphasis on such tangible explanations is not surprising given the overwhelming use of econometric techniques, such as ordinary least squares regression (Ciscel & Carroll, 1980; Finkelstein & Hambrick, 1988), logistic regression (Walking & Long, 1984), time series analysis (Murphy, 1985), and event studies (Brickley, Bhagat & Lease, 1985; Coughlan & Schmidt, 1985; Tehranian & Waegelein, 1985). This paper argues that the focus on tangible, observable variables by compensation researchers is a methodologically ‐ driven practice that constrains theory building and testing. As a result, we may have ignored interesting and relevant theoretical frameworks for the study of executive compensation. We also have overlooked the use of analytical techniques that allow us to examine the role of potentially relevant latent constructs. In this paper, we will describe and illustrate the use of covariance structure modeling for the study of institutional pressures on executive compensation.

Details

Managerial Finance, vol. 21 no. 2
Type: Research Article
ISSN: 0307-4358

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